30 Nov 2005

Co-operative Federalism

By Greg Barns
This cocktail of constitutional and fiscal superiority means one thing: the Commonwealth can pretty much do as it likes in terms of ensuring that its policy prescriptions are adhered to by the states, regardless of political hue

Fifteen years ago a duo of Australian political leaders, Labor Prime Minister Bob Hawke and Liberal New South Wales Premier Nick Greiner determined that the Australian federal system should be remodelled to meet the challenges of a modern, dynamic, flexible society and economy heading into the 21st century.

Greiner, in a speech to the National Press Club on 25 July, 1990 put the case this way:

For over a decade, government has been telling industry that it must restructure if Australia is to compete successfully in international markets ... Now it is government's turn After more than a decade of being lectured by politicians, the nation is saying to the governments of Australia, 'Physician, heal thyself!'
This speech was a response to Hawke's invitation for State and Territory and local government leaders to join with him in forging a 'New Federalism.' A federalism which recognised, in the words of the communiqué from one of the 1990 Special Premiers' Conferences that Hawke called to begin the process of revamping Australia's federal system:
Past inefficiencies can no longer be tolerated and changes are needed to make the Australian economy more competitive and flexible. An internal part of any micro economic reform strategy is a more effective public sector. Leaders and representatives therefore declared their intention to use this unique opportunity to maximise co-operation, ensure a mutual understanding of roles with a view to avoidance of duplication and achieve significant progress towards increasing Australia's competitiveness.

In those heady days, Greiner and Hawke were supported by fellow reformers such as Tasmanian Labor Premier Michael Field and his Queensland counterpart Wayne Goss in driving an ambitious agenda that was prepared to try radical solutions even in politically sensitive areas such as fiscal arrangements, health and education, to achieve better outcomes. There was a refreshing bipartisanship about the 'New Federalism.'

But fast forward to 2005 and the Commonwealth is slowly strangling the States and Territories of any capacity to govern without Commonwealth policy and fiscal intervention. Why? Because now the Commonwealth holds the purse strings in a way that it did not in 1990.

Caption

Under the Howard Government's A New Tax System (ANTS), and courtesy of its key component the GST, the Commonwealth is now collecting around 82 per cent of total taxation. Prior to the introduction of ANTS the States' share of tax collections was around 19 per cent today it is 16 per cent.

As former Queensland Treasurer David Hamill, a minister in both the Goss and Beattie Governments has observed recently,


The increasing financial dependence of States and Territories on Commonwealth munificence will not only render them increasingly vulnerable to the dictates of the central government, but remove such policy and spending autonomy that distinguishes them from being simply another category of service provider for the Commonwealth.

It is this fiscal reality that enables Howard Government ministers to say with confidence that the Commonwealth should assume greater control over infrastructure (for example, ports, hospitals, schools and universities) whether it be by direct control or through the establishment of Commonwealth facilities and programs to compete with the States as is the case with the Howard Government's proposed trade training colleges which will rival the State TAFE system.

Let's also remember that the High Court, be it the liberal court of Chief Justices Anthony Mason or Gerard Brennan, or the conservative bench of current Chief Justice Murray Gleeson, is the friend of the Commonwealth. It is rare for State challenges to Commonwealth laws to be successful these days.

So this cocktail of constitutional and fiscal superiority means one thing the Commonwealth can pretty much do as it likes in terms of ensuring that its policy prescriptions are adhered to by the States, regardless of political hue.

It may be that the state of affairs which exists today is a result of a view that, as Gordon Greenwood prophesied almost 30 years ago, 'federalism is no longer a suitable form of government for dealing with the economic and social problems which industrialisation brings with it.'

If that is the prevailing view then it's a pity. What Australia needs is a return to where Hawke and Greiner left off 15 years ago. Because a co-operative federalism model which focuses on the best delivery of outcomes is still a prize the Australian community deserves to win.

Co-operative federalism would entail the Commonwealth loosening its grip on the States' throats and redressing the fiscal imbalance that exists today between the two levels of government. It means that the Commonwealth and the States must create co-operative models for key policy areas like health and infrastructure.

The Special Premiers' Conferences of 1990 should be revived and each one dedicated to a particular policy area. The object of these conferences which ought to be held twice a year would be for the Commonwealth and State/Territory leaders to 'think outside the square' in formulating new practical models of these tiers of government working side by side in areas of policy where the current entanglement of regulations, and confusion of responsibilities, is blocking the path to better outcomes for the community.

ANTS needs to be revisited in this context. It cannot be that the States' share of tax collection continues to decline at the current rate. If it does then, as David Hamill says, the States will simply be service providers for the central government.

As Bob Hawke and Nick Greiner envisaged, some form of fiscal devolution needs to be shaped so that the States have the flexibility to deliver policy outcomes in a fashion that is driven by efficiency and not political ideology or as a response to political pressure from the Commonwealth.

Finally, if Australia is to become a model of co-operative federalism as Hawke and Greiner envisaged, constitutional reform must be embarked upon urgently. It is clear that the current Australian Constitution is an impediment to the federal system. The federal system is held to ransom now by the High Court's rulings about sections of the Constitution that were relevant in the context of 1901 but which today bear no relationship to the reality of Australia.

Australia's Constitution needs to provide a balance between flexibility and certainty. For co-operative federalism to genuinely succeed in the long term we must abandon the division of powers between the Commonwealth and the States set out in our current Constitution, and replace it with clauses which reflect co-operative and flexible arrangements between the tiers of government.

There is, of course, a broader and more theoretical debate about whether the States and Territories ought to be abolished in favour of regional administrations. But for the foreseeable future we are stuck with what we have. And we must make it work for the nation's sake. Something understood by Hawke and Greiner but not so by their successors today.

Greg Barns is a Hobart based writer and has been an adviser to the Howard government and a member of the Australian Democrats.

He is currently working on a book on Canadian and Australian political and cultural issues from 1968-2004.

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